Some traders base their trading strategies on fundamental analysis, some use technical analysis while others use a mixture of both. Technical analysis is more famous among stock market traders. They use a number of technical indicators and tools, which they add to their daily charts, to analyze market trends and price movements. While tools and indicators are great, trading strategies cannot be based on these alone. A more comprehensive way of technical analysis is the use of a chart like the naked chart. Many indicators deem this as the ultimate alternative of using a number of tools and indicators. Let’s see how a trading chart can help you.
Naked charts represent simple trading charts without indicators. Naked trading, or “indicator free” trading is simply a trading technique without technical indicators where traders use only candlesticks and price levels as trading triggers.
All You Need to Know About Naked Chart Trading
Unlike the practice of adding indicators to your daily trading charts, the naked chart will allow you to trade every day without focusing on any indicator. Naked Chart Trading is related to Price Action Trading as it focuses on real-time price trends than anything else. Price action is the movement of a security’s price plotted over time. Plain candlestick charts are used along with singular patterns such as pin bars.
This might sound simple but this is exactly what the experts advise. Traders often get overwhelmed by a number of indicators. In order to not miss anything, they keep adding these indicators to their charts and create clutter. Trading can be done efficiently when you have clear charts and your mind is not running in different directions. This is exactly what a naked chart makes it possible. Trading in itself can be taxing and seeing a number of lines running all over your screen will only increase your psychological burden. Naked charts are simple and proficiently tell you about price movements.
Data that concentrates mainly on price action is anyway considered superior. If you are still confused, let us clear this up for you. Indicators are nothing but derivatives of these price movements or actions. Experts often label them as lagging because they do not provide complete and accurate information. Yes, they do help traders in identifying possible reversals and trends but to form a rewarding trading strategy, you should consider naked charts or price action if you really want to use an indicator.
How to Trade Without Using Indicators
Many traders rely heavily on indicators and end up making a mess. Trading without indicators is possible and highly effective. All you need to do is to understand the market structure and studying its momentum. This is how you can do it:
1. Identify the Market Direction:
The market structure is made of swing-highs and lows. In order to understand the market direction, a trader must know about these highs and lows. Their order of occurrence creates signals that allow you to determine the direction of the market. You can identify whether the market is bearish or bullish using these highs and lows. You will be able to capture new trends as well.
Identifying swings requires practice and knowledge. There are highs and lows which are further segregated into four parts. Highs can be higher highs or higher lows. Similarly, lows can be higher lows or lower lows. This is how you identify trend using these four terms:
- If the higher highs are persistent and are followed by higher lows, you have an uptrend.
- If the lowers lows are persistent and are followed by lower highs, you have a downtrend.
- There is a third option with no set pattern of swings and this is called a consolidating trend.
You can easily find out a trending market by analyzing these charts. Don’t beat yourself trying to make sense out of those complicated indicators. You will get a buy signal when the higher highs and lows are continuing as it depicts a bullish trend. You will get a sell signal when the lowers highs and lows are continuing as it depicts a bearish trend.
Along with clear highs and lows, you can also see neutral or ranging market conditions. These are not desirable conditions. It happens when the price levels show both highs and lows simultaneously at the same level as the prices are stuck between two levels. In this condition, swing points are identified in the same area. It is very difficult to spot the chances of reversal.
2. Spot Reversals Using a Naked Chart
Resistance and support levels can help traders in identifying possible reversals. These can be spotted using charts. Trend lines and horizontal levels are also useful when it comes to spotting price reversals. Some traders and investors also resort to Fibonacci levels for the same. All of the above can create two possible scenarios. First, prices will move continuously along the major support levels and then make a U-turn. The other possibility is that prices retrace along with the old support levels. They use a new resistance level to make the reversal possible.
If you are able to identify important levels of support and resistance along with uptrends, you can easily spot reversals.
3. Catching Trade Signals
Charts are highly reliable when it comes to generating buy and sell signals. Candlestick patterns highlight reversals in naked charts.
Naked Chart Trading VS Indicators
Traders fear losing information and they keep adding indicators to their charts to avoid that. This is a big mistake as it will lead you nowhere. You are in a more advantageous position if you are relying on trading charts. By developing skills to read charts, you can have a more practical approach rather than relying on intuition, which is what trading via indicators is about. However, we cannot neglect the fact that indicators are there for a reason and can be useful when used rightly. This is how naked charts are different than indicators:
- Naked charts are more reliable. Unlike indicators which are often lagging as they show past price actions, naked charts show current price actions. You will be able to make quick decisions using charts.
- It is okay to use a couple of indicators but that is not usually the case. Traders go overboard with adding indicators to their charts, thus, making everything messy and confusing. From old trend lines to cloud patterns, everything will be visible on your chart that can overwhelm you. Instead, use a clean naked chart and use it to spot current trends and reversals.
- A naked chart doesn’t just offer current information. Charts are more comprehensive than indicators as you can have access to historical data that you can employ to study how the market moves and make an informed decision.
- Indicators can give crystal-clear signals. They are not subjective and it is one of their biggest advantages. New traders will find it easier to understand indicators than charts.
- Price actions create obvious signals which means that more traders will be using the same strategy. This herd mentality can make things less profitable.
- Sometimes, all you will get is a blank chart which will lead you nowhere. Indicators can provide some reference points on these charts that can help you in making decisions. This can save you time.
We can conclude that in the battle of naked charts vs indicators, there is no clear winner. It is all about the individual strategy of traders. Work with the one that makes decision making easier for you.